Source: ESMA, data correct as of 12/11/20254
All firms will need to consider how innovation can support offerings. Artificial Intelligence (AI) is expected to be a key enabler in delivering TS, particularly through data analysis, market segmentation, and scaling personalised content for investors. In parallel, firms must understand and manage the risks AI exacerbates – including data and algorithmic bias – that could lead to investor harm.
Supervisors will expect AI use in TS to be governed as a material risk, with clear accountability, explainable decisions, and robust evidence of positive customer outcomes. This will require strong data governance, proactive bias detection, transparent disclosure of AI use to retail investors, and access to a human advisor where concerns arise. Ongoing effective model testing and continuous monitoring will also be essential to ensure AI systems can identify vulnerable customers and respond effectively to changing circumstances. See our AI and data op-ed for further details.
Finally, market momentum and increasing regulatory clarity will prompt firms to reassess their digital asset strategies in 2026. While fund tokenisation will remain a common focus, firms will increasingly explore unbacked digital asset offerings (e.g., Bitcoin). The FCA’s move to allow retail investors indirect exposure to unbacked digital assets via exchange traded notes (ETNs) opens new product opportunities. Global AUM in crypto-based exchange traded funds increased from $40 bn in 2022 to $190 bn in 2024, underscoring investor appetite.4
However, it also marks the Duty’s most substantive move into the inherently volatile world of unbacked digital assets. A critical focus is identifying appropriate target markets. One approach is to define a “negative” target market – identifying retail customers whose needs, characteristics, and objectives are incompatible with specific products.5 Bitcoin ETNs, for instance, may not suit individuals with limited capacity to absorb financial losses. Firms should also consider their fee structures. Where fees are tied to a percentage of the underlying asset’s value, regular reviews and adjustments may be necessary. For instance, a static percentage-based fee could become disproportionate if the price of the underlying asset rises in the medium term.
See our digital assets and payments op-ed for further details.
Ongoing emphasis on good customer outcomes
EU and UK policymakers’ drive to reduce and simplify regulations should not be mistaken for a reduced emphasis on good customer outcomes. There will be an ongoing strong emphasis on ensuring that customers receive suitable advice, receive adequate information about risk and returns to make effective decisions, and value for money is appropriately considered.
The FCA’s Consumer Composite Investments (CCI) regime, finalised in Q4 2025, aims to streamline the UK Undertakings for Collective Investment in Transferable Securities and Packaged Retail and Insurance-based Investment Products regimes but, even in its new form, is still considered onerous by the industry.
Manufacturers face significant operational changes due to the need to design Duty-compliant disclosures without templates and revised cost, risk, and performance calculations. Challenges also include increased information sharing and distributors having to develop a communications and disclosures framework compliant with the Duty. Firms that enhance customer understanding through high-quality communications and disclosures are best placed to benefit from CCI.
Geopolitical risk
In 2026, volatile geopolitics will mean that liquidity management will remain a priority. The FCA’s March 2025 multi-firm review highlighted how wholesale firms managed liquidity during stressed geopolitical and market events. The lessons apply to investment managers, e.g., integrating liquidity risk considerations with market, credit and operational risks, and conducting stress tests that genuinely reflect their risk exposures.
Firms in both the EU and UK should ensure robust governance in selecting liquidity management tools suited to their investor base, asset classes, jurisdictions, and strategies. This multi-faceted approach requires continuous oversight.
More broadly, firms should consider the potential for geopolitical risk to lead to retail investor harm. European Securities and Markets Authority flagged that heightened risk environments may result in retail investors making poor trading decisions due to information overload, misinformation exacerbated by social media, or trading gamification.6 Firms should consider the best channels and cadence of communication to inform investors about portfolio impacts and protective measures.
Climate and nature risk
Firms also face rising climate- and nature-related risks. Policymaking on climate risk in 2026 will primarily focus on reporting and disclosure requirements. For entity-level reporting, negotiations on the Corporate Sustainability Reporting Directive (CSRD) were finalised in December 2025, with a clear direction: a significant reduction in firm scope and delayed application for those not already reporting.
The UK Sustainability Reporting Standards (SRS) are expected to be finalised early this year, after which the FCA will consult on the application of the requirements for UK listed firms – likely specifying reporting from 2028 (for periods starting 1 January 2027). The SRS will enhance the existing Task Force on Climate-related Financial Disclosures and will cover strategy, transition plans, and financed emissions. Additionally, in 2026, firms with AUM between £5bn and £50bn will prepare their Sustainability Disclosure Requirements entity-level sustainability risk disclosures for reporting on 2 December 2026, with a crucial element being the rationale for disclosed risks.
Many firms will no longer be in scope of CSRD or will not be in the first wave of UK SRS reporters. However, given the benefits of being able to cater to stakeholders’ data requests, firms may decide to continue to invest in obtaining and providing environmental, social and governance data even though timelines for reporting are being pushed back and requirements simplified.
Despite delays and amendments to regulations, firms need to continue to manage changing climate and transition risks in portfolios proactively.
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